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How to ease the hard times

At times I get a bit frustrated at all this talk of a credit crunch. Commentators and the media are scaring people so much that they will talk the UK into a recession.

There is no doubt that some people are getting it really tough at the moment. These are hard times for people in the construction industry, estate agents, buy-to-let landlords and solicitors handling a lot of conveyancing.

Having said this, the majority of Northern Ireland workers are in the public sector and so are cushioned from any recession. They may notice electricity and food prices up a bit, but at least their salary arrives every month.

Today I plan to give a few tips about how to ensure you survive the credit crunch by managing your tax and financial affairs properly.

Tax payments on account: Many self-employed people and some employees have to pay tax both in January and July each year. For them January 31, 2009 and July 31, 2009 will bring the two payments on account towards the year 2008/09.

These work out so that each payment is 50% of the final 2007/08 liability. The January payment can make for a very depressing Christmas.

If you have good reason to believe that 2008/09 will be a much worse year for income than 2007/08 then you can help yourself.

You can apply to the revenue to have the January and July payments reduced. You can reduce them to half of what you, or your accountant, reckon might be your final 2008/09 tax bill.

Note that if you bring the bills down too low you will be charged interest by HMRC.

Mortgage arrears: Do not drift into arrears over a mortgage without having an early conversation with the mortgage lender.

It may be hard to secure a new mortgage these days, but it is even harder if you have gone into debt before.

All the more important, then, to keep up a dialogue with your lender. They may be able to assist you in a variety of ways.

For example on a repayment mortgage they might extend the term, thus lowering monthly payments.

Stock valuations for builders: If your building stock of completed houses, sites and part-builds is lower at your year-end than it has cost you then you can reduce your taxable profits.

Stock is to be valued at the lower of cost and market value. Normally this means we use cost. However, in the current climate market value may be lower.

Speak to your accountant about this when they are doing your accounts.

Loss relief — tax refunds: If you have a business and have made losses then these can be turned to your advantage. Trading losses can be set against your other income for the same tax year.

This could be useful if you lose tax from other income — for example an employment or bank interest. You could get some of that tax back. The alternative, which is often better, is to carry the loss back to the previous year. So a 2007/08 loss can be carried back and set against your total income for 2006/07. This could produce refunds of last year’s tax.

Don’t change vehicles: The car trade will hate me for this, but if funds are tight then do not change vehicles.

Car acquisition and running expenses are among the costs which businesses can have an impact on before laying off staff.

In particular, be wary of taking on new HP, lease or finance deals when you don’t know how your business will fare over the next three years.

If you have to hand back a vehicle at the end of some deal then consider whether it needs replaced at all.

Running a car costs probably £3,500 upwards per year when you take into account the loss in value as well as running.

Perhaps make do without a vehicle and take the bus or the odd taxi. Saving £3,000 would allow for a lot of taxis.

Keep tax up-to-date: Two things here — firstly keep up-to-date with tax payments. Revenue interest charges and surcharges cannot be claimed against business profits. Secondly get all tax forms in promptly. This avoids unnecessary tax penalties — which are especially nasty for employer end-of-year returns and construction industry paperwork.

Furthermore if your tax forms are up-to-date then you should have the clearest possible picture of your true tax liabilities.

Watch utility bills: Do your bit to save on electricity and fuel costs. Not only is it good for the environment but it will reduce your business costs.

Do those lights really need to stay on? Does the store need so much heat? Are you heating unoccupied office space?

Generate new business: If one sector of your business has dropped then get working on another sector to grow it. Don’t just try to cut costs, see if you can help sales a bit too.

If things are going to get worse, being prudent now will at least mean you know you were prepared, before it was too late.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – or (028) 9080-6080

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